International Power plc is a leading independent power generation company with interests in over 70GW (gross) of power generation capacity, and in closely linked businesses around the world.
A portfolio approach
We manage our business through a portfolio management approach, which involves maintaining a balance in the portfolio in terms of geographical spread, fuel diversity, technology and contract type. This approach gives us access to multiple opportunities to create value whilst mitigating the risks associated with overexposure to any particular market, fuel, technology or contract type.
This portfolio approach also extends to our operational capabilities. We are able to operate a range of power plant technologies, including thermal, hydro, pumped storage and renewables. These technologies produce electricity using different fuel types that include gas, oil, coal and renewable sources such as wind, water and sun. This multi-technology expertise allows us to capture opportunities that are best suited to the market in question.
As electricity is critical for any economy, governments carefully decide whether or not they wish to liberalise this key sector. Several governments have retained full control of the sector while others have fully liberalised both the production and supply of electricity. Trading and commercial skills required for operating in liberalised (merchant) or non-liberalised (contracted) markets are very different – and we have both.
The government-controlled, contracted markets typically offer opportunities to sell power to government bodies via long-term power purchase agreements (PPAs) that offer stable returns. Assets in the merchant markets are subject to the forces of supply and demand, and these markets are generally more volatile. Although different, both these markets offer attractive risk/reward environments for investments.
International Power maintains a balanced presence in both types of market, providing the business with a stable platform of long-term contracted earnings and cash flow, overlaid by merchant generation which offers a greater potential for superior returns when market conditions are favourable. We also ensure that lessons learned in any particular market are shared across the business.
In addition to operations in power generation, the enlarged International Power seeks to create industrial synergies through investing in closely linked businesses such as LNG terminals, gas distribution and energy retail (largely for commercial and industrial customers).
A key objective of the portfolio approach is to maximise value through knowledge sharing across the business. As our energy operations are primarily local activities, local knowledge and focus are essential. However, local operations can benefit immensely from being part of a worldwide organisation. To capture the value offered by this ‘local-global combination’ is a key focus for the organisation.
Maximising the value of our existing portfolio
Our specific strategies for value enhancement in each country and for each individual plant are tailored to local requirements, but generally we seek to achieve the following:
- Optimise the operations of our power plants
We optimise the operation of our power plants through several means including: managing all of our sites to high standards of safety and operating performance; managing our business on a portfolio basis; closely co-ordinating plant operations with trading to maximise the value of our output; standardising management reporting for all investments; and investing in improved plant efficiency.
- Maximise the return from our portfolio
We optimise operations as described above and we leverage our investments, particularly by using non-recourse finance at the project company level. We may sell businesses if this generates a higher rate of return for our shareholders.
Strong growth focus
International Power, and we have clear investment criteria to ensure that our acquisitions and new-build projects deliver value for our shareholders. We are well placed to grow our international portfolio and our enlarged geographic footprint, in-depth market knowledge and strong customer relationships continue to present us with multiple growth opportunities. The combined business also benefits from a strong development pipeline of future projects, and International Power’s increased financial strength will allow it to support an enhanced development strategy.
Our long-term contracted markets in Latin America, the Middle East, Turkey and Africa, and Asia continue to offer significant short and medium-term growth opportunities. We are continuing to actively evaluate a number of new greenfield projects across these markets. In addition, we have further growth potential in merchant markets through carefully timed investments. Our overarching criterion, irrespective of the market structure in which we operate, is that our investments create value for our shareholders.